Economy

The year 2009 will witness a tsunami of economic appeals to fix, as disgraced Federal Reserve Chairman Alan Greenspan put it, the 'flaw' in their thinking. Most will get it wrong.

The proposals for bailouts, regulations, and government spending sprees all share one tragic flaw: They assume no physical or biological limits to human growth. Most economists cling to an 18th century mechanical universe that conjured an 'invisible hand' of God, which would allegedly convert private greed into public utopia.

Meanwhile, a rigorous sub-culture of scientists and economists have been working to free economics from its eighteenth century quagmire by reconciling human enterprise with the laws of physics, biology, and ecology.

Their time has come. This year, 2009, will signal the birth of a genuinely innovative economics that will eventually displace the patchwork rationalisations for greed. The new ecological accounting is variously called 'dynamic equilibrium', 'steady-state' or 'biophysical' economics.

What about technology?
Ignoring nature remains the tragic conceit of conventional economists, who presume we can grow our economies forever without regard to quantities of materials, energy, and pollution. Biophysical economics, on the other hand, acknowledges that there exist no cases in nature of unlimited growth.

Dr. Albert Bartlett, Emeritus Professor of Physics at Colorado University, urges economists to learn the laws of nature. Non-material values - creativity, dreams, love - may expand without limit, but materials and energy in the real world remain subject to the requirements of thermodynamics and biology. "Growth in population or rates of consumption cannot be sustained. Smart growth is better than dumb growth," says Bartlett, "but both destroy the environment." [emphasis added - Fred's]

Goldman Sachs London conducted a poll of FX/Macro fund managers today that had interesting results. The poll demonstrated that fund managers are expecting deflation more than inflation and that they expect the U.S. or Asia to escape the downturn first (and certainly not Europe or the UK). I imagine that funds are positioned accordingly in currencies, stocks, and bonds.

Here are the poll results:

83% of participants believe that the biggest global threat at present is ‘deflation' vs 17% believing this will be ‘inflation.'

82% believe we will se a US style 1930s Depression vs a German style 1920s period of hyperinflation.

47% believe the US will recover first from the current crisis, 42% believe it will be China/Brazil... Only 7% believe this will be the UK and only 4% believe it will be Europe!

73% believe the US will recover before the Eurozone (only 6% believe that Europe will recover before the US while the rest believe they will both recover at the same time).

55% believe a country will leave the Eurozone 10 years from now or later - only 10% believe that this will happen within the next year.

44% indicate that they are avoiding all EM investments for now - 20% would invest in Latam, 27% in non-Japan Asia and the rest in EMEA.

The Bad Bank Assets Proposal: Even Worse Than You Imagined, by Yves Smith: Dear God, let's just kiss the US economy goodbye. It may take a few years before the loyalists and permabulls throw in the towel, but the handwriting is on the wall.

Russia signalled a change in its policies to fight the financial crisis on Wednesday, indicating that it would switch from bailing out individual companies to supporting the economy through the banking sector.

Moscow also plans huge budget cuts in an attempt to limit its fiscal deficit - rejecting pressure to follow the US and other western countries to try to stimulate the economy with a big boost in public borrowing.

The proposals suggest that Moscow is losing hope it can stave off the crisis with public spending and is instead battening down the hatches for what might be a prolonged recession.

The plans also indicate that the authorities are not giving in to public demands for a quick-fix response and are ready to resist pressure for money from cash-strapped oligarchs.

The US Treasury on Wednesday opened the floodgates of government bond issuance, revealing plans for a record debt sale in February and more frequent auctions in the months to come.

The announcement came amid growing fears about US government deficits and sent the yield on the benchmark 10-year Treasury note rising to 2.95 per cent, up from just over 2 per cent at the end of December.

The rise in Treasury yields has been pushing mortgage rates higher, complicating efforts to revive the economy. The US Federal Reserve said last week it was "prepared to" buy Treasuries if that would be a "particularly effective" way of reducing private borrowing costs.

"The Fed has to be troubled by the fact that mortgage rates have been rising and the buying of Treasuries by the Fed may come sooner than the market expects," said William O'Donnell, UBS strategist.

The Treasury said it would sell $67bn (£46bn) in new securities next week, the largest ever quarterly refunding, beating the last peak in August 2003. It may also start monthly sales of all its benchmark Treasury securities.

At the end of February, the Treasury will start selling seven-year notes every month for the first time since the issue was discontinued in 1993. Sales of 30-year bonds will double to eight times a year and the Treasury will say in May whether the bond will be sold every month.

For Barack Obama's administration, the step-up in borrowing costs comes as it is fighting to secure an $800bn-plus fiscal stimulus, and is likely to need many hundreds of billions more to fund a banking sector clean-up.

The Treasury Borrowing Advisory Committee expressed concern on Wednesday over the sharp jump in net borrowing needs - which market analysts estimate could reach $1,500bn to $2,500bn for the 2009 financial year.

NEW YORK (Reuters) - Bank of America Corp (NYSE:BAC - News) shares fell below $5 for the first time since 1990 on speculation that spiraling losses at newly acquired Merrill Lynch & Co might lead to government control of the largest U.S. bank, wiping out shareholders.

Shares fell more than 11 percent, marking the fifth straight decline, as rumors persisted that mounting losses on mortgages and corporate loans might lead to the nationalization of the Charlotte, North Carolina, lender, or even the ouster of Chief Executive Kenneth Lewis. Bank of America and Merrill Lynch ended 2008 with $2.49 trillion of assets.

"Until we get some clarity that even the largest banks will remain in shareholder hands, this downward spiral is just going to continue," said Nancy Bush, an analyst with NAB Research.

President Obama's Wall Street salary cap may be well intentioned and it certainly taps into public sentiment, but it's a killer for New York.

"Without the talent of Wall Street to bring us back into a position of leadership in the global economy, we're going to be in bad shape as a world economic power," said Kathryn Wilde of the Partnership for New York.

Wylde says the Obama salary cap will lead to a critical brain drain - China and the United Arab Emirates have already come to poach Wall Street talent. She also says lower salaries in the financial industry will mean dramatically lower tax revenues for the city and state.

"We also depend heavily on the financial services industry to fund our economy and our tax rolls," said Wylde. "Last year 20 percent of our income taxes in the states - 12 percent in New York City came from Wall Street."

The words will be kept to a minimum. Monthly charts can be tough to look at because they are so cumbersome and inefficient in the short term. But the big picture of gold vs. everything shows hysterically over bought; generationally over bought, and as a TA guy (and a bottom feeder) that disturbs me. As a macro fundamental guy and a human being, I see the reasons staring us in the face. Gold is monetary value in a world gone mad and in the early stages of trying to come to its senses. Anyway, here are some charts for your review. Form your own conclusions.

Feb. 3 (Bloomberg) -- Corporate debt defaults may cost U.S. life insurers "substantially" more than losses on securities linked to subprime, Alt-A and commercial mortgages, said Eric Berg, an analyst at Barclays Plc.

Corporate defaults are poised for a "significant" increase this year as the recession deepens, Berg, based in New York, said in a research note yesterday. The American Council of Life Insurers estimated the industry, led by MetLife Inc. and Prudential Financial Inc., holds $1 trillion in corporate debt.

"None of the life insurers we studied appear to be doing a particularly good job" of picking bonds backed by companies, Berg said. "Understandably, investors are concerned."

Life insurers have plummeted in the past year in New York trading as investment losses and guarantees on slumping retirement products sap capital. Hartford Financial Services Group Inc. leads the industry with $7.9 billion in writedowns and unrealized losses tied to the real-estate market since 2007, while New York-based MetLife has accumulated $7.2 billion, according to Bloomberg data.

Hartford and Prudential have cut jobs, asked regulators to ease reserve standards and applied for aid from the government's $700 billion rescue program to replenish funds after reporting net losses in the third quarter. MetLife sold $2.3 billion of stock in October to bolster finances. The Standard & Poor's Supercomposite Life & Health Insurance Index has declined about 61 percent in the last 12 months.

The vacancy rate for homes typically occupied by the owner rose to 2.9% in the fourth quarter of 2008 from 2.8%, matching the all-time high set a year ago, the commerce Department reported Tuesday. Prior to the housing bubble bursting in 2005, the vacancy rate had never been above 2%. For rental properties, the vacancy rate rose to 10.1% from 9.9%. The homeownership rate fell to 67.5%, the lowest since 2001. In the fourth quarter, 2.2 million homes were vacant and for sale, virtually unchanged from a year earlier. The nation's housing stock increased by 2.2 million in 2008 to 130.8 million.

Well, I wish there were more words - I'm afraid I'm not very well versed in reading financial charts. I'd like to learn though, so can someone explain the overall thrust or take one chart and dissect it (say Gold:S&P500 for instance)?

"Without the talent of Wall Street to bring us back into a position of leadership in the global economy, we're going to be in bad shape as a world economic power,"

Really? She actually said that?

I've been very impressed by the talent of Wall Street so far at securing our position of leadership in the world economy. Not. It seems to me that the faster these guys head out to China and the United Arab Emirates the better off we'll be.

As far as our position as a world economic power, I have to assume that Ms. Wylde doesn't pay much attention to current events or history. Bankrupt debtor nations are rarely able to wield any influence as economic powers - anyone that thinks the United States will be an economic superpower again anytime in the near future needs to pull their head out of the sand and start dealing with reality.

Well, I wish there were more words - I'm afraid I'm not very well versed in reading financial charts. I'd like to learn though, so can someone explain the overall thrust or take one chart and dissect it (say Gold:S&P500 for instance)?

My sentiments exactly! I've been anxiously awaiting & reading these posts daily for a few months and keep looking at charts but just not "getting it"... hoping for an "ah ha" moment! Can someone please give a link or a recommendation of a book... or maybe even take the time to explain?

I think today I finally figured SOMETHING out - please tell me if I'm wrong. On the gold/silver chart... is it refering to the cost of gold vs the cost of silver ratio? (Sorry to be so un-informed at this stuff... I've been cramming for the last few months as I knew NOTHING before!)

THANK YOU so soooo much, btw, for this site!!! I'm very glad I started learning and acting before it was too late!

"Without the talent of Wall Street to bring us back into a position of
leadership in the global economy, we're going to be in bad shape as a
world economic power," said Kathryn Wilde of the Partnership for New
York."

So far our "top talent" is leading the world into a global recession. I guess some people just like to lead the parade no matter where it's going....And... some people (ah hem Kathryn Wilde ah hem) will stand out there, wave their little flags and shout for a candy toss while the parade leaders march over a cliff.

The charts in the Gold Article are Japanese Candlestick charts, amongst other technical indicators. A good webiste to learn about technical analysis is http://hardrightedge.com/wheel/beginners.htm. Alan Farley also writes a number of book on technical analysis and swing trading. Japanese Candelstick charts are much more informative than the usual bar charts, and are much easier to read.

The Gold Silver ratio historically has been around 12 to 1. Meaning twelve ounces of silver were equal to one ounce of gold. This ratio has changed throughout history however from what I have read this ratio should come close to returning. A great book on silver and gold investing is a book by Michael Maloney titled "A Guide to Investing In Gold and Silver: Protect your Financial Future". This is a great book for any beginer precious metal investor.

From the pov of political language, the most bizarre element of all this is the apparently secret Orwellian definition for the term "talent" shared by Wall St and the mainstream media.

Whatever this secret meaning is, it's not the same as what the English language means by it.

"Talent" generally means a special, innate ability at some skilled activity. So by definition someone who shows no skill at this activity, who on the contrary seems extremely bad at it, would not be called talented.

By any conventional, "good civics" boosterism about what Wall St's social function is supposed to be, it has been proven beyond any doubt at all that no level of money can attract "talent" according to any English definition of the word. It only attracted the most aggessive, incompetent, and greedy.

So why is anybody still talking about talent?

Maybe the key is that the conventional justification for the finance industry is a lie. I've never been able to figure out what it is Wall St really does other than run a con job, convincing the gullible and greedy that worthless paper actually has value.

At this they have shown considerable skill.

So maybe what's really going on here is that industry and media insiders, those who really understand the game, have for so long understood "talented" to mean "talented con artist" that they're incapable of seeing themselves from the outside. They feel like everyone has done exactly what he was supposed to do, has shown his "talent", and they don't understand what all the shouting is about.

That's also why they seem congenitally unable to understand why anyone objects to bonuses. Everyone has done his part in the grand con and done it well. From their pov, everyone has exemplified his talent and earned his bonus. They're so far beyond using any English definition of "bonus" that they truly don't understand what anybody outside the Con is talking about.

What we're dealing with here is simply an objectively corrupt, antisocial group.

I keep waiting for Obama mention his salary is $400,000/year for a much tougher job than Wall Street manipulations. Granted, he has Air Force One and the White House rent free....and considerable other "perks", but pretty sure he is not going to remodel the Lincoln bathroom for 1.5 million.

I say: let the talent leave because they cannot make their hundreds of millions. I suspect some honest, diligent hardworking accounting types out there could do the job for a million or two a year, and do it better.